Operational Excellence: where are we and what’s next?

Operational Excellence has been continuously evolving over the past decades and it is still not running out of steam. But vying for attention of COOs and the like, a new challenger appears to have arrived: Industry 4.0.
Marc Thys

Operational Excellence has many faces. You may know it under different names: Lean, Continuous Improvement, Total Productive Maintenance, World Class Manufacturing, … As far as we are concerned, the similarities far outweigh the differences, so we’ll stick to Operational Excellence as the overall term.

Operational Excellence has been continuously evolving over the past decades. Judging by the constant stream of books, conferences and blog posts on the topic, it is still not running out of steam.
But vying for the attention of COOs and the like, a new challenger appears to have arrived: Industry 4.0. Judging by the hoopla surrounding it, it is going to change the world.

Where have we heard that one before?

Leadership, people, organization and culture

One thing definitely has not changed though (so far at least…): people and organizations still form the backbone of it all.
So it may be just as well that Operational Excellence has also, perhaps only just in time, started paying a lot of attention to the people and organization components.

Not too long ago, “tools” and “processes” were making up the main body of Operational Excellence. The Six Sigma movement reduced process improvement to sampling distributions, standard deviations and confidence levels. And yes, by doing so it uncovered massive opportunities for defect reduction and efficiency improvements. In many cases however, they just remained opportunities, or at best short-lived blips on the operations dashboards.

The “Lean” side of the movement did not always fare better. Many an effort to do “5S”, “Kanban” and other “SMED” exercises initially created tons of enthusiasm, many Kaizen events and t-shirts, and eventually just pleasant memories of operators taking over the place… for a week at a time.

Organizations behave like systems

It came to a point where a number of the original Lean gurus asked themselves where they went wrong. Why did the revolution not take place? What was it that they failed at? What did the C-levels fail to understand?
They each appear to have come to their own conclusions. It is… Leadership! Or no, it is Management! Or no, it is Organization! Or no, it is Culture!

Probably it is not any of those, taken individually. In the mid-20th century, sociologists and engineers alike had started to understand organizations as systems, with many interrelated parts and something they called “feedback loops”. They understood it had physical components as well as people components, and they called them “socio-technical systems”. The key insight is that changing one part of the system affects all others. The entire system reacts to the one change, often in unforeseen ways, fluttering and drifting for a while, but usually resulting in a new “steady state” that is not too far from the previous one. Any difference in output, or efficiency, or whatever metric is used, appears to be completely unrelated to the amount of energy spent to change it.

These insights led to whole new ways of looking at organizations and how they function. Even the component that was for a long time considered to be the most important one – namely Leadership – was challenged for a while, which gave birth to the concept of “self-managing organizations”.

Excellence models such as the Shingo Model have come to recognize the importance of all these components, and of the integrating systems. Systems are an explicit component of the Shingo Model, “systemic thinking” is one of the core principles, and “systems drive behaviors” is one of the key insights.

Industry 4.0 or ‘System 4.0’ ?

Back to today, and to Industry 4.0. Interestingly, Acatech, the German organization that is responsible for Germany’s official Industry 4.0 publications, refers to a model that looks like… a system! A remarkably simple one, with essentially People, Organization, and Technology as the core components, with a Strategy layer on top. Maybe we should just call it “System 4.0”?

Even with the advent of Industry 4.0, the basic tenets of Operational Excellence hold true. Organizations are and behave like systems. It is essentially futile to try to change the performance of a system by just changing one of the components. Leadership, People, Organization and Culture are at the core. Recent technological developments will not essentially change that. The challenge of dealing with Technology as part of the System is still there – just even more so! – and will require all our learning and organizational development skills to make it work “as intended”.

We will be discussing the future of Operational Excellence in the “System 4.0” world more extensively in the coming months.

Thanks for reading

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